Corporate restructuring allows companies to cut out business practices hurting their bottom line, restructure debts and optimize organizational structures and procedures to ultimately make their company viable again. While restructuring can have a large payoff when successful, an unsuccessful restructure can permanently put a company out of business. That’s why it's vital to hire an experienced restructuring attorney to help you strategize, organize and manage the process.
Understanding Corporate Restructuring
When a company is going insolvent or facing another significant problem, corporate restructuring is used to turn the company around. Restructuring is any process that makes a significant modification to the debt, operations, legalities, or structure of a company. It almost always includes reorganizing the legal, ownership, operational, financial, and other structures of a company to make it more profitable, better organized, or better adapted to changing market conditions and company needs.
Most commonly, formal legal proceedings trigger restructuring, but this process can also be internally launched more informally by officers to bring the business back to profitability. Often, a change of ownership or ownership structure, Chapter 11 bankruptcy proceedings, a hostile takeover, a demerger, a response to a business crisis, or major change in the business, such as a buyout or repositioning, is involved in the reasoning behind a restructure.
Financial and Debt Restructuring
Financial and debt restructuring is a key way that companies begin the restructuring process. Essentially, financial restructuring requires consolidating and adjusting the terms of debts carried by the company and recapitalizing. This can include securing new loans, debt rescheduling, and equity-for-debt swaps. Often, companies will also issue private placements in an attempt to raise capital.
Financial restructuring alone is rarely enough to turn a struggling business around. At the same time, they usually must carry out operational restructuring. During operational restructuring, a company adjusts its business model to become more profitable. Exactly what this entails will depend on the company. Common cost-cutting moves during operational restructuring include:
Mergers and sales of divisions or product lines
Discontinuation of product lines or areas of service
Factory and storefront closures
Sales of assets
In addition, many companies restructure the legal and operational setup of the company at this time. Management and the executive team may be removed and sometimes ownership even changes.
The key instrument that makes corporate restructuring and turnaround possible is the turnaround plan. The formal turnaround plan details every step that the company plans to take in order to return itself to solvency. In addition, a turnaround plan establishes metrics with which to measure the company’s progress towards financial sustainability. This plan is based on weaknesses found after a thorough management review, root failure causes analysis, and SWOT analysis of what led the company to its current insolvency. Generally speaking, the turnaround plan develops a short-term solution to later be replaced by a long-term plan.
M&A During Insolvency
A majority of corporate restructuring plans involve selling of a portion of the business or merging with another, yet mergers and acquisitions become exponentially more complex during the restructuring process. Whether you are buying or selling, M&A during insolvency requires expert knowledge in order to avoid the common pitfalls that plague these deals and ensure the desperately needed positive outcome. A restructuring lawyer or an M&A lawyer specialized in insolvent companies can help you develop the best possible strategy.
How can my company deal with retention of title claims during restructuring?
During restructuring, you may face retention of title claims on already acquired goods, as this is a common term in many contracts. This can hurt the restructuring process if not dealt with forcefully. Discussing this possibility with your restructuring lawyer can help prepare for the possibility and best fight them in order to mitigate their impact on turnaround.
Is restructuring only a legal issue during bankruptcy?
No. Many companies that are struggling must restructure, often in an attempt to avoid a bankruptcy. If your company is overwhelmed by debt, it may help to talk to a turnaround and restructuring lawyer about your options.